CIBC World Markets analyst Robert Catellier recommends investors should “continue to position for secular exposure to natural gas, despite healthy year-to-date returns.”
“Strong fundamentals for natural gas are improving long-term earnings visibility, increasing our confidence in terminal multiples,” he said. “Key demand drivers are coming from multiple sources, including power burn for data centres/AI, LNG exports, re-onshoring of manufacturing, among other drivers. The persistence of natural gas demand despite volatile prices and weather is remarkable. We recommend adding volume exposure where visibility is stronger and more sustainable than commodity price exposure.”
“While the rally started in February, it found another gear in April, coinciding with the recent peak in long-term rates. We use this rate as a proxy for risk-free rates. More interesting is the contraction in credit spreads, which ... should serve as an additional catalyst for companies with asset sale programs (TRP, ENB, BIP, ALA).”
In a research report released Monday, Mr. Catellier raised his targets for stocks in the space by an average of 3.1 per cent to reflect “optimism in the long-term resilience of natural gas demand as a theme.”
His changes are:
- AltaGas Ltd. ( “outperformer”) to $40 from $38. The average is $35.33.
- Enbridge Inc. ( “outperformer”) to $59 from $57. Average: $54.36.
- Keyera Corp. (“neutral”) to $39 from $37. Average: $36.83.
- Pembina Pipeline Corp. ( “outperformer”) to $60 from $59. Average: $55.33.
- TC Energy Corp. ( “neutral”) to $59 from $56. Average: $54.61.